A large TSP balance would be needed to match the annual retirement income of your likely FERS pension. Together with Social Security federal employees should be well positioned. Image: Andrii Yalanskyi/Shutterstock.com
By: John GrobeHow are you doing when it comes to retirement savings? There are many ways to measure success in preparing for retirement, and in one of them you’re doing better than 74% of workers. What way is that you ask? That way is having a defined benefit pension like FERS. According to the Bureau of Labor Statistics 26% of civilian workers have a pension. Only 16% of private sector workers are fortunate enough to have a pension, where over ¾ of state and local government workers have one.
Your FERS Pension and the Value of Lifetime Income
Your FERS pension will be a valuable and stable source of income in retirement—essentially functioning like an inflation-adjusted annuity that you can’t outlive. Looking at the present value of money in today’s terms, a retiree receiving $30,000 per year from their FERS pension would need to have saved roughly $750,000 to $850,000 in a personal investment account to generate the same level of guaranteed lifetime income.
That comparison assumes a 4% sustainable withdrawal rate, which financial planners often use to estimate how much savings can safely support annual withdrawals over 25–30 years. Because your FERS pension continues for life—and adjusts annually for inflation—it’s far more secure than drawing from an investment portfolio that fluctuates with the markets.
COLAs
Your FERS annuity includes a modified cost-of-living adjustment (COLA) to help offset inflation. The COLA for 2026 is set at 2.8%, based on the rise in the Consumer Price Index. Here’s how the adjustment formula works:
- If inflation is 2% or less, you receive the full increase.
- If inflation is between 2% and 3%, you receive 2%.
- If inflation exceeds 3%, your COLA will be 1% less than the inflation rate.
Value of Your FERS Pension vs TSP
By contrast, a TSP balance of $1.5 million would be needed to reliably generate about $60,000 per year under the 4% rule—or $30,000 per year at a very conservative 2% withdrawal rate designed to preserve principal.
Look at your TSP balance and compare it with some recent numbers which show the median net worth (assets – liabilities) of families by age:
• Under age 35 $39,000
• Age 35 – 44 $135,000
• Age 45 – 54 $$247,200
• Age 55 – 64 $364,500
• Age 65 – 74 $409,900
• Over age 75 $335,600
Source: Federal Reserve Board’s 2022 Survey of Consumer Finances
Remember that “net worth” includes more than just retirement savings and debt so, if you have saved more than the above amounts, you are doing better than over 50% of your age group.
So far, we’re probably feeling pleased with ourselves and where we stand vis a vis our age group, not to mention the fact that we have our FERS pension (AND Social Security!). I suspect that our situation has something to do with our net worth too. Here are recent median net worth figures for different types of families:
• All families $193,000
• Homeowners $396,200
• College graduates $464,400
• The top 10% $1,600,000
Source: Federal Reserve Board’s 2022 Survey of Consumer Finances
The odds are favorable for federal employees to enjoy a comfortable retirement. Take a look at where you stand and see if they are favorable for you.
John Grobe is a retired federal employee and retired retirement educator with over 30 years of experience in helping federal employees understand their retirement.
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See also,
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How Your FERS, Social Security and TSP Payments Get Taxed
